Each year, thousands of mortgages are renewed in Canada. If your mortgage term is coming to an end in the next few months, it’s time to start thinking about renewing your contract. Fortunately, renewing your mortgage doesn’t necessarily mean you’ll be paying the same rate as before. In fact, your mortgage renewal can be an opportunity to negotiate with your lender, or even renew with a different institution for a better rate.
Whether you’ve signed for a term of one year, five years, or even longer, almost every homeowner will need to deal with the mortgage renewal process at some point. That’s why it’s so important to understand the steps in renewing, as well as your options in getting the best rate possible.
If your mortgage is with a federally regulated institution, the first step in the mortgage renewal process will be receiving a renewal notice.
Understanding your renewal notice
By law, your lender is required to issue you a renewal notice at least twenty-one days before the end of your term. Your mortgage renewal notice should have the same type of information as your mortgage contract, including:
- The remaining sum of your mortgage
- The length of the renewed mortgage term
- The interest rate you’ll be paying
- The payment frequency
- Any applicable fees and charges
This renewal notice will likely have a contract that you can sign and send back, locking you into another term with your lender.
For many homeowners, this renewal notice is the end of the line for them. More than half of Canadian mortgagors will accept the renewal with their current lender, and sign themselves onto another term without negotiating. In fact, most lenders bank on this fact. Many don’t want to deal with the ‘hassle’ of negotiation, and so your lender won’t offer the most generous terms, hoping that you’ll choose convenience over a better rate.
And the truth is, many people take this option – it seems so much simpler than re-qualifying for a mortgage with a new lender. But if you choose to sign your current lender’s renewal contract, you could be leaving a significant amount of money on the table.
Your mortgage renewal is the perfect opportunity to reassess your situation, and see if the terms of your contract are still working for you. If you’re considering making a change before your next mortgage term, there are some questions to ask yourself:
- Has there been any change in finances that would allow you to increase your monthly payments, allowing you to pay off your term faster?
- Is your current payment frequency working for you? Would you be able to switch from monthly payments to bi-weekly, accelerating your term?
- Do you see yourself making lump sum payments in the next term?
- Do you have other debt that you’d like to consolidate with your mortgage?
- Do you require additional insurance on your mortgage, such as for disability, critical illness, or employment?
- Are you happy with the services of your lender?
By answering these questions, it should become clear whether or not a new term with your lender is going to work for you. It’s not always easy to do this – looking so far into the future can be a challenge. Consider speaking with a mortgage broker to help you answer these questions, and explore new options for your next term.
For many of us, situations change, and the terms of our mortgage contracts are no longer ideal. This is why it’s so important to shop around the mortgage market before it’s time to renew, and ensure you get the best rate. You’re well within your right to negotiate with your current lender, and sometimes this is the best course of action. Loaning institutions will want to keep you signed on with their contract, and will often give you a break on your new term in the interest of keeping your business.
However, there may be a different institution with a rate that can’t be beat, or a contract that is otherwise more suitable. In the short-term, switching lenders can cost you money. There are more fees and charges, such as for appraisals or administrative costs, which can make switching lenders feel intimidating. However, if you sit down with your finances and the going rates, you might find that making the change can save a lot more money down the line.
If you’re not planning on moving anytime soon, you’ll be living in your home for years to come, paying down your mortgage as you go. If you have a long time before your mortgage is amortized, think of switching lenders as a long-term investment. Although there might be initial fees, the savings of a lower interest rate will add up over time, and more than pay for the upfront costs of switching lenders. As well, bear in mind that a lender may be willing to swallow some of these costs to get you in the door, so don’t forget to negotiate your terms, whether you’re switching or not.
Getting help from the pros
For many, the mortgage renewal process is a stressful time, with lots of questions and the worry that you’re not getting the best deal. That’s why it can be such a relief to sit down with a qualified mortgage broker, a professional that understands the mortgage market and process inside-out.
A mortgage broker can walk you through your current term, and compare it to what’s currently available from your lender and others. They will also take a look at your finances, and make projections on what kind of contract will work for you down the line. And while doing your own research is a crucial first step in locking in the best rate for your next term, nothing can replace getting help from the pros. So if you still have questions about the mortgage renewal process, reach out to Milka Lukacevic and the team of mortgage experts at The Mortgage Centre.